It is clear that a collapse of the OPEC cartel would have enormous implications. The oil price under global competition would hardly be much higher than 10-15 $, which is less than half of the price fetched by OPEC in the three decades after 1974, the year of the first oil price shock. A fall of oil prices would bring about a fall of gas prices which in turn would raise the demand for gas-powered electricity generation. However, given the fact that the Middle East is the source of most of the world’s proven oil reserves and taking into account high long term growth in oil and gas demand in Asia, including China, one should expect that the relative market share of OPEC will not decline quickly, thereby ensuring its sustained market power for many decades to come.
Turning directly to the electricity market we find modest liberalization gains in Germany and other EU core countries and more dynamics in Scandinavian countries. The electricity liberalization results thus are relatively modest in the overall EU. Electricity prices still have not converged much, and there are considerable doubts that transmission fees reflect long run marginal costs. Indeed, there are two long term inefficiencies:
• grid operators and the distribution companies have a strong incentive to levy all fixed costs on the transmission fees which implies that distribution companies or grid companies that also are power generators will largely impair access of “outsiders”, in particular foreign suppliers.
• there also is no incentive for firms to restructure existing networks in an efficiency- enhancing way – this in turn reinforces competition among generators as reduced network charges imply a larger market radius for every power generator which profitably can sell power over the grid.
In many countries, politicians are not eager to promote comprehensive liberalization since the electricity sector is a field in which part of the political elite finds a cosy future environment for retiring from political life. Structural separation will improve competition only after 2007 when distribution companies are no longer able to charge higher network charges to outsiders than to the own units producing electricity. An unsolved problem is the distortions emerging from CO2-emissions is that in countries with a high share of CO2-
intensive energy inputs in electricity generation, there will be an incentive to import more nuclear electricity from abroad where producers often are not facing the full costs of production – e.g. due to artificial limits on liability and thus a bias towards low costs of insurance (France and Germany for example).
The German approach of negotiated third party access is strange, unique in the EU-15 and not efficiency-enhancing. Rather negotiated third party access might reinforce the risk of collusion in the electricity sector. With the introduction of a new regulator for the electricity sector in 2004, the German system might gradually move towards a more efficient system of resource allocation in electricity. It remains to be seen which approach to regulation the new authority (the existing body overlooking telecommunications and the post will be enlarged) will adopt.
The special German TPA approach – initially shared by Greece and Denmark – suggests that Germany’s political culture has a preference for bargaining approaches and mistrusts market dynamics which often are perceived as containing a high degree of uncertainty. By contrast, most economists consider competitive markets efficiency enhancing and useful in particularly bringing about international efficiency gains through trade. At the same time, they mistrust the mechanisms of bargaining among select players, in particular in the area of political bargaining which often has a bias towards short-term orientation and national solution concepts.
As regards a wider Europe, it is clear that the EU enlargement will bring new opportunities for intra-EU-25 trade in the electricity sector. However, it is doubtful that all EU outsiders in Europe will enjoy non-discriminatory access to the EU-25 market. Russia is facing particular problems as long as it is not a member of WTO.
A rather paradoxical element of energy policy in many EU countries is that it lacks a solid long term orientation which would be useful for achieving sustainable development in Europe. Instead, changes in government typically bring major shifts in energy policies which makes the highly capital intensive energy sector – including the electricity sector – a highly politicised business. Foreign investors not well connected to political circles in the
respective country and the Commission might face a crucial disadvantage in the industry. In this respect, US investors are only slightly better positioned than potential investors from Russia or Japan, and this effectively restricts investment from those countries.
In a period of major budget problems in Germany, France and Italy, government is likely to exploit efficiency gains and price cuts in the electricity sector by imposing new taxes as was done in Germany and some other EU countries after liberalization. Scandinavian countries are clearly advanced in terms of competition in electricity, and all firms using electricity intensively will particularly benefit from this.
In EU-15, the political drive towards comprehensive liberalization in the energy sector is undermined by high unemployment in Germany, France and Italy. Introducing competition is likely to lead to lay-offs in part of the industry, and in countries where unemployment already is high, there clearly is resistance to liberalization policies. The electricity sector is capital intensive and characterized by high concentration in most EU countries so that it is rather easy for well organized workers and a handful of firms to appropriate economic rents. Germany, France and Italy have a culture of resisting reforms and can hardly be expected to quickly move towards comprehensive liberalization. The industry facing pressures of CO2-trading also broadly resists the idea of comprehensive
liberalization.
As regards EU accession countries, Poland has the most competitive electricity sector as its reform in the 1990s largely followed the British model with its separation of power producers, grid companies – owned jointly by power producers – and local distribution. In most accession countries, however, one can hardly expect much competition in electricity. The Baltic states, the Slovak Republic and Slovenia are truly small countries in which very few domestic electricity firms compete. Benchmarking in such cases is also rather difficult. In the early liberalization stage, the very low rate of households changing the electricity supply company in EU-15 indicates that establishing a competitive electricity market is a complex challenge. Attempts to create markets for heterogeneous electricity – reflecting the type of input used (so that users can have access for example to “green power” from renewables at a slightly higher cost) – have largely failed in the EU.
The slow growth of technological progress and the true state of weak competition in the electricity sector is finally revealed by failure of almost all companies in major EU countries to install metering with remote controls. Only in the UK could one explain annual visits by the meter man from the local distributor with a solid reason, that being emphasis on tradition which is a nice part of the British way of life.
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Annex 1. Eurostat Electricity Retail Prices
(Current Prices, Before Taxes)
% change % change
Jul 97 Jul 98 Jul 99 Jul 00 Jul 01 Jul 02 Jul 03 since 1/1999 since 7/2002
Germany 162 163 158 134 133 126 134 -17% 6% Ireland 135 127 126 126 126 127 128 2% 1% Luxemburg 136 137 137 131 121 122 127 -8% 4% Belgium 146 149 148 146 128 130 122 -18% -6% Italy 119 114 115 128 78 101 104 -8% 3% Portugal 118 115 105 104 105 100 101 -3% 1% Spain 109 100 98 98 98 99 95 -3% -4% EU-15 105 104 102 98 92 92 93 -9% 2% Greece 84 82 86 83 87 87 90 5% 4% Austria 160 161 162 126 102 97 89 -45% -8% France 91 89 87 85 85 86 83 -7% -4% UK 105 105 108 101 93 84 78 -28% -7% Finland 59 59 55 54 54 57 68 21% 19% Denmark 51 52 52 55 65 67 65 23% -3% Sweden 69 67 59 53 41 36 46 -26% 30% Netherlands 91 92 94 101 106
Eurostat category Ib: Consumption of 50MWh/year Prices in the table exclude VAT and other energy taxes.
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No. 1 Welfens, P.J.J.: Telecommunications in Systemic Transformation, January 1995. No. 2 Welfens, P.J.J.; Graack, C.: Telecommunications in Western Europe: Liberalization,
Technological Dynamics and Regulatory Developments, January 1995.
No. 3 Welfens, P.J.J.: Achieving Competition in Europe’s Telecommunications Sector, February 1995.
No. 4 Addison, J.T.: The Dunlop Report: European Links and Other Odd Connections, May 1995.
No. 5 Addison, J.T.; Blackburn, McKinley L.: A Puzzling Aspect of the Effect of Advance Notice on Unemployment, May 1995.
No. 6 Welfens, P.J.J.; Graack, C.: Deregulierungspolitik und Wettbewerb in Netzindustrien: Bedeutung und Optionen für osteuropäische Transformationsländer, May 1995.
No. 7 Addison, J.T. Chilton, J.B.: Models of Union Behavior, June 1995.
No. 8 Graack, C.: EU-Telecom Markets and International Network Alliances: Developments, Strategies and Policy Implications, August 1995.
No. 9 Welfens, P.J.J.: Koordinationserfordernisse der EU-Infrastrukturpolitik, November 1995.
No. 10 Hillebrand, R.: Umweltpolitik in föderalen Systemen - eine kritische Analyse der EU- Umweltpolitik, December 1995.
No. 11 Addison, J.T.; Schnabel, C.; Wagner J.: On the Determinants of ”Mandatory” Works Councils in Germany, December 1995.
No. 12 Welfens, P.J.J.: Towards Full Employment and Growth in the European Union, December 1995.
No. 13 Welfens, P.J.J.: Wirtschaftspolitische Kompetenzverteilung in der Europäischen Union, December 1995.
No. 14 Welfens, P.J.J.: Privatization, Efficiency and Equity, January 1996.
No. 15 Hartwig, K.-H.; Welfens P.J.J.: EU and Eastern Europe: Western European Integration and Eastern European Transformation, May 1996.
No. 16 Welfens, P.J.J.: Konsequenzen einer Osterweiterung für die EU und deren Reformbedarf, May 1996.
No. 17 Graack, C.: Structure of the Telecoms Sector and Degree of Internationalization in Europe and Russia, July 1996.
No. 18 Bogai, D.: Werkstatt der Deutschen Einheit? Wirtschaft und Arbeitsmarkt in der Region Berlin-Brandenburg, October 1996.
No. 19 Graack, C.: Internationale Aspekte der Telekommunikationswirtschaft: Liberalisierung, internationale Tarifmechanismen und Wohlfahrtseffekte, October 1996.
No. 20 Jungmittag, A.; Welfens P.J.J.: Telekommunikation, Innovation und die langfristige Produktionsfunktion: Theoretische Aspekte und eine Kointegrationsanalyse für die Bundesrepublik Deutschland, October 1996.
No. 21 Welfens, P.J.J.; Guth M.: EU-Strukturpolitik in Deutschland: Entwicklung, Effizienzüberlegungen und Reformoptionen, October 1996.
No. 22 Welfens, P.J.J.; Graack C.: Telekommunikationsmärkte in Europa:
Marktzutrittshemmnisse und Privatisierungsprobleme aus Sicht der Neuen Politischen Ökonomie, October 1996.
No. 23 Welfens, P.J.J.: Die Position Deutschlands im veränderten Europa: Wirtschaftliche und reformpolitische Perspektiven, November 1996.
No. 24 Hartmann, P.: Foreign Exchange Vehicles Before and After EMU: From Dollar/Mark to Dollar/Euro?, November 1996.
No. 25 Jungmittag, A.; Welfens P.J.J.: The Political Economy of EMU and Stabilization Policy, May 1997.
No. 26 Hölzler, H.: Privatisierung und Einführung von Wettbewerb in Rußland, January 1996. No. 27 Welfens, P.J.J.: Small and Medium-sized Companies in Economic Growth: Theory and
Policy Implications in Germany, May 1997.
No. 28 Bogai, D.: Europäische Arbeitsmarktpolitik und nationale beschäftigungspolitische Initiativen, May 1997.
No. 29 Welfens, P.J.J.: Research & Development Policy and Employment, June 1997.
No. 30 Sinclair, A.: Liberalising the Electricity Supply Industry in Western and Eastern Europe: Lessons for Russia, July 1997.
No. 31 Graack, C.: Infrastructure Investments and Regulation in Telecommunications, July 1997.
No. 32 Welfens, P.J.J.; Schwarz A.: Die Rolle des Staates in der Sozialen Marktwirtschaft bei Globalisierung der Wirtschaftsbeziehungen, August 1997.
No. 33 Welfens, P.J.J.; Wiegert R.: Transformation Policies, Regulation of
Telecommunications and Foreign Direct Investment in Transforming Economies, July 1997.
No. 34 Welfens, P.J.J.: Internationalization of Telecoms, Deregulation, Foreign Investment and Pricing: Analysis and Conclusions for Transforming Economies, July 1997.
No. 35 Schwarz, A.: Subventionspolitik in den mittel- und osteuropäischen
Transformationsländern: Gegenwärtige Strukturen, Probleme und Transparenzdefizite, September 1997.
No. 36 Welfens, P.J.J.; Hillebrand R.: Globalisierung der Wirtschaft: Wirtschaftspolitische Konsequenzen des internationalen Standortwettbewerbs, September 1997.
No. 37 Stiller, H.: Material Intensity of Transportation and Implications for Sustainable Mobility in Europe, September 1997.
No. 38 Gerstberger, T.; Graack C.: Competition and Deregulation in the Japanese Telecommunications Network Industry, September 1997.
No. 39 Welfens, P.J.J.: Wirtschaftspolitische Flankierungserfordernisse des Euro-Starts, November 1997.
No. 40 Aslund, A.: The Political Economy of Systemic Transformation and Institution-Bulding, November 1997.
No. 41 Guth, M.: Regionale Beschäftigungspakte im Rahmen der EU-Strukturpolitik: Hintergrund und Einordnung, November 1997.
No. 42 Jungmittag, A.; Welfens P.J.J.: Politische Ökonomie der Europäischen Währungsunion und Stabilitätspolitik, January 1998.
No. 43 Welfens, P.J.J.: Labor Costs, Unemployment and Innovation, February 1998. No. 44 Addison, J.T.; Audretsch, D.B.; Gries, T.; Grupp H.; Welfens, P.J.J.: Economic
Globalization, Innovation and Growth, April 1998.
No. 45 Welfens, P.J.J.: Euro, Währungsunion und EU-Binnenmarkt, April 1998.
No. 46 Addison, J.T., Schnabel, C.; Wagner J.: Works Councils in Germany: Their Effects on Firm Performance, March 1998.
No. 47 Addison, J.T.; Portugal, P.: Short- and Long-Term Unemployment, March 1998. No. 48 Welfens, P.J.J.: Trade and Optimum Import Tariffs: A Note in the Context of Foreign
Direct Investment, June 1998.
No. 49 Bohn, F.: Monetary Union and the Interest-Exchange Trade-off, July 1998.
No. 50 Welfens, P.J.J.: Exchange Rate Policy for the Euro: Theory, Strategic Issues and Policy Options, July 1998.
No. 51 Addison, J.T.; Portugal P.: Job Search Methods and Outcomes, July 1998.
No. 52 Jungmittag, A.; Welfens P.J.J.: Telecommunication, Innovation and the Long-Term Production Function: Theoretical Analysis and a Cointegration Analysis for West Germany 1960-1990, August 1998.
No. 53 Welfens, P.J.J.: Eastern EU Enlargement: Problems, Conflicts and Policy Options, September 1998.
No. 54 Welfens, P.J.J.: Die russische Transformationskrise: Monetäre und reale Aspekte sowie Politikoptionen, November 1998.
No. 55 Graack, C.; Welfens, P.J.J.: Internationaler Technologiewettlauf, Arbeitsmarktdynamik und Unternehmensgründungsdynamik bei Standortkonkurrenz, September 1998.
No. 56 Welfens, P.J.J.: Liberalisierung der Energiewirtschaft in Deutschland und EU- Partnerländern, Januar 1999
No. 57 Welfens, P.J.J.: The RussianTransformation Crisis: Origins, Analysis and NewPolicy Requirements, January 1999
No. 58 Komulainen , Tuomas: Currency Crisis Theories – Some Explanations for the Russian Case, May 1999
No. 59 Welfens, P.J.J.: Internet Market Dynamics in Germany: From a small Market towards a Strategic Sector of the Economy, May 1999
No. 60 Wiegert, R.: Der russische Bankensektor im Prozeß der Systemtransformation, Juni 1999 No. 61 Vogelsang, M.: How to rescue Japan: Proposal of a staggered VAT reform. Draft,
May 1999
No. 63 Sutela, P.: Overcoming the Russian Transformation Crisis: Selected Issues and Policy Options, June 1999
No. 64 Bohn, F.: The Italian Case: A Parable for the Eastern Enlargement of the EMU, July 1999
No. 65 Meyer, B.; Welfens, P.J.J.: Innovation – Augmented Ecological Tax Reform: Theory, Model Simulation and New Policy Implications, September 1999
No. 66 Gavrilenkov, E.: Crisis in Russia: Selected Problems of the Macroeconomic Performance, September 1999
No. 67 Steinsdorff, S. v.: Wie demokratisch ist Rußland? Dezember 1999
No. 68 Pelzel, R.: Internationalisierung der Telekommunikation, eine Vergleichsanalyse für USA, Großbritannien und Deutschland, Dezember 1999
No. 69 Serebryakov, G.: Structural Change and Econometric Prospective, January 2000 No. 70 Bohn, F.: Political Instability, Inflation, and International Loans, February 2000 No. 71 Welfens, P.J.J.: The EU and Russia: Strategic Aspects of Transformation and
Integration, April 2000
No. 72 Jungmittag, A.: Techno-Globalismus: Mythos oder Realität?, Juli 2000
No. 73 von Westernhagen, N.: The Role of FDI in the Transition Process of Selected CIS and Eastern European Countries, September 2000
No. 74 Welfens, P.J.J.; Hollants, J.; Kauffmann, A.: Mittelständische Unternehmen und das Internet: Perspektiven in Deutschland, Oktober 2000
No. 75 Jungmittag, A.; Welfens, P.J.J.: Auswirkungen einer Internet Flatrate auf Wachstum und Beschäftigung in Deutschland, März 2000
No. 76 Addison, J.T.: Is Community Social Policy Beneficial, Irrelevant, or Harmful to the Labor Market Performance of the European Union?, September 2000
No. 77 Welfens, P.J.J.: Modern Exchange Rate Theory and Schumpetrian Economic Analysis: New Approach and Application to the Euro, June 2000
No. 78 Guth, M.: From technology policy for regions to regional technology policy towards a new policy strategy in the EU, December 2000
No. 79 Welfens, P.J.J.; Kauffmann, A.; Vogelsang, M.: Evaluationsbericht: Das Internet strategisch richtig nutzen, Februar 2001
No. 80 Welfens, P.J.J.: Transatlantische Wachstumsunterschiede, Euro-Schwäche und Finanzpolitik, Mai 2001
No. 81 Jungmittag, A.; Welfens,P.J.J.: Effects of an Internet Flat Rate on Growth and Employment in Germany, February 2001
No. 82 Welfens, P.J.J.: Transatlantic Growth Differentials, ICT Dynamics, Fiscal Policy and the Fall of the Euro, July 2001
No. 83 Wiegert, R.: Financial Sector and Human Capital in a Long-Term Growth Perspective: The Case of Russia, July 2001
No. 84 Addison J.T.: Principles of Market-Oriented Labor Market Policies; July 2001
No. 85 Jungmittag, A.; Welfens, P.J.J.: Europäische Telekomliberalisierung und Außenhandel: